5/06/2009 @ 9:50AM

Gambling Firms Bet On Barney Frank

They’ve already been burned once by Congress, but investors in online gambling companies stocks think Lady Luck is finally on their side now that Rep. Barney Frank is introducing a bill to propose that online gambling be legalized and regulated in the United States.

Getting the bill through the Senate will be the hardest part, according to Joe Kelly of the State College of Buffalo. But success could mean publicly traded firms outside the U.S. can re-enter the market after a 2006 law prohibiting online gambling by Americans booted them out.

Shares of Gibraltar-based
PartyGaming
, one of the world’s biggest online gambling firms, jumped 7.3% to 279 pence ($4.20), in London on Wednesday morning, while
888 Holdings
jumped 10.7%. PartyGaming’s shares have hovered around the $3.80 mark ever since they dropped from nearly $15.00, just after to the passing of the Unlawful Internet Gambling Enforcement Act in October 2006. (See “Online Bets Are Off.”)

Wednesday’s rally surprised Nick Batram, an analyst with KBC Peel Hunt in London, since investors have known for some time that Frank would be tabling a bill this week. He said there were also wide-ranging views of how quickly a successful bill could become law, with estimates in the industry ranging from six months to six years.

“A lot of people are saying the political balance in the U.S. has changed quite dramatically which gives pro-gaming a better chance,” he said. “But it’s an extremely complex matter and people feel very strongly about it.” Anti-gaming lobby groups appear to have been stepping up their activities in the last few weeks, Batram added.

There have been four unsuccessful bills to legalize online gambling in the last session of Congress, but Frank’s is the first being tabled under the Obama administration, giving it a better chance than past bills. Kelly of the State College of Buffalo says “prohibition” has proved unworkable because it only replaced publicly traded companies with those that do not answer to regulators.

Frank’s bill will on Wednesday propose safeguards against compulsive and underage gambling, money laundering, fraud and identity theft, according to the Safe and Secure Internet Gambling Initiative, which says that Americans have wagered more than $100.0 billion annually with offshore Internet gambling operators in spite of the Unlawful Internet Gambling Enforcement Act of 2006.

Some of the most popular poker sites for Americans are FullTiltPoker.com and PokerStars, according to PokerScout.com. Publicly traded gambling firms like PartyGaming and 888 Holdings by contrast pulled out of the United States after the passing of the 2006 act.

But PartyGaming’s shares probably won’t reach the historic highs they once enjoyed before the outlaw act of 2006, even if online gambling in the U.S. is legalized. “It will be a challenge because it will be a different market, full of opportunity but full of much bigger competitors as well,” Batram said. While large, land-based casino operators like MGM Mirage have not entered the online gambling arena just yet, they might once the practice is legalized.